Off-payroll working legislation ‘poorly drafted’, says ICAEW

ICAEW’s Tax Faculty has called on HMRC to be proportionate in its response to non-compliance to off-payroll working rules from 6 April, as draft legislation isn’t coherent.

ICAEW's latest response to the government's consultations on draft secondary legislation for off-payroll working, ICAEWrep 03/20 Off payroll working from April 2020: transfer of PAYE liability et al: draft PAYE and Social Security Contributions Regulations, ICAEW’s Tax Faculty argues that the income tax PAYE regulations (ITR) and social security contributions regulations (SSR) are poorly drafted.

As businesses have already incurred considerable costs to prepare for the imminent rule changes and with only six weeks before go-live, the Faculty says that delaying implementation would cause problems, and so urges HMRC to ‘be proportionate’ in it dealing with non-compliance for the first year or two of the new system.

Included in the draft regulations are proposals to enable HMRC to collect unpaid PAYE relating to deemed employees from ‘the agent in the labour chain closest to the end client’ or from the end client within a reasonable period of time.

The Faculty raises a number of concerns with these proposals, including:

  • that such a serious measure is being legislated in secondary, not primary legislation
  • the meanings of “realistic” and “reasonable” in this context
  • the possibility of charges falling onto the innocent, and
  • the rights of appeal.

The faculty welcomes the ITR’s provision that the deemed employer/fee payer must indicate in payroll submissions that the contractor is a deemed employee.

The draft SSR amends and extends the off-payroll working regime for NIC. The equivalent draft legislation for income tax will be in a Finance Bill (FB), draft legislation for which was published in July 2019 and on which the Faculty commented in September 2019 in ICAEW REP 86/19.

The draft SSR appears to be the same as the draft FB, and so the Faculty repeats the concerns it raised previously. In the absence of feedback on draft FB comments, it is not clear whether they have been considered by government. Major concerns on the SSR proposals, include:

  • the need to improve information flows for the status determination statement,
  • the disagreements process, and
  • RTI reporting.

While HMRC has published detailed guidance (ESM10000) relating the legislation on 10 February, the Faculty confirms that it still waiting for answers to practical questions raised in ICAEW REP 127/19.

In this latest consultation response, ICAEW maintains that the need for the off-payroll working regime could be eliminated if a long-term solution, such as removing or reducing the NIC cost imbalance between different types of employment status, could be agreed.

Meanwhile, industry awaits the reports of the Treasury off-payroll working (OPW) review and the House of Lords Economic Affairs Committee Finance Bill Sub-committee review, to both of which ICAEW has submitted evidence.

For more guidance from ICAEW on IR35/OPW, please visit our IR35/OPW webhub at

OPW, please visit our IR35/OPW webhub at

  • Well noted David!  I agree with what you say.  Fee-payers will be unwilling to risk tax liability and penalties plus the cost of defending themselves, even if they believe their decision is correct.

    But don't you think HMRC's objective IS to kill the contractor market?  They should however note (1) they use contractors themselves to save NI; (2)  NI is a tax on employment and forcing all work to be under PAYE will necessarily reduce employment as well.

    Turning to our critique of the draft legislation, its shortcomings are very clear.  In places it does not even mesh in with existing administrative collection provisions.

    But in our paras 6 and 12 we repeat our assertion that the NIC cost imbalance between different types of employment status should be removed or reduced.  I'd like to know how!  NI raises £136bn pa.  In simple terms, below the UEL NI on employees is 16.8% more than on contractors. The difference is worth £23bn pa.  The government will not give up that money by reducing NI on employees.  The government will not be re-electable if it increases NI on millions of contractors by that margin.  If ICAEW doesn't know of a workable way of reducing the gap, we should not be suggesting that HMRC or government should do it.

    Answers on a postcard please...…...

  • I am seeing a number of situations where even though the contractor is outside IR35 per CEST, the "fee payer" is taking a broad-brush approach and will be deducting PAYE & NI anyway, or, is forcing the contractor to use an umbrella org and forcing the umbrella to deduct PAYE and NI. What is the CEST for if all "fee payers" is going to take this approach? This is going to kill the contractor market. The legislation is ill-conceived by the Treasury and not understood by those having to implement it (the fee payers).